Gold Prices Rebound but Respite May Be Short-Lived, S&P 500 Muted as Yields Rise

GOLD PRICES AND S&P 500 FORECAST:

• Gold prices rise for the second day in a row, but the fundamental outlook for the precious metal remains bearish
• The S&P 500 lacks direction as risk appetite remains subdued amid rapidly rising interest rates in the U.S. economy
• This article discusses the key technical levels to watch in gold and the S&P 500 over the coming days.

Most Read: Gold Prices at Risk Heading as Death Cross Comes Into Focus

Gold prices extended their recovery for a second straight session on Tuesday and touched $1,835, but buying interest wasn’t particularly powerful as traders remained reluctant to increase their exposure to rate-sensitive assets amid growing monetary policy headwinds. Meanwhile, equities were largely directionless, with the S&P 500 oscillating between small gains and losses around the 3,990 mark, a clear sign of a lack of conviction on Wall Street.

In the fixed income space, yields resumed their ascent across most maturities following Monday’s small pullback, prompting the U.S. Treasury curve to shift slightly upwards, but the move failed to restrain precious metals or depress stocks in any meaningful way. Despite today’s price action, recent bond market dynamics can be viewed as bad news for both asset classes.

WHAT IS HAPPENING?

Heading into 2023, traders were confident that the Fed would pivot and start cutting interest rates during the second half of the year due to a rapid decline in inflation. However, these expectations have faded after CPI and activity data surprised to the upside, increasing the likelihood that policymakers will have to do more to strangle stubbornly high price pressures in the economy.

Against this backdrop, the market has repriced higher the Fed’s hiking path, discounting a terminal rate of approximately 5.41% at the time of writing, up from 4.90% at the beginning of the month. The more aggressive tightening trajectory, coupled with the prevailing perception that the U.S. central bank will maintain an overly restrictive stance for longer than initially envisioned, has bolstered real yields, pushing the US 10-year TIP near 1.6% from 1.12% about four weeks ago.

2023 FEDS FUNDS FUTURES (IMPLIED YIELD) & US 10-YEAR REAL YIELD

Source: TradingView

The jump in real yields will prevent gold from staging a material and lasting recovery, keeping prices skewed to the downside heading into March. For the S&P 500, which appears overvalued based on current rates, the path of least resistance is likely lower as well, especially as earnings have started to flop. Monetary policy acts with long and variable lags, so the corporate outlook could continue to worsen as the Fed’s cumulative tightening works its way through the real economy.

S&P 500 TECHNICAL ANALYSIS

After the recent pullback, the S&P 500 appears to have found support at a rising trendline extending from the 2022 lows. If prices manage to rebound from current levels, initial resistance lies at 4,035, followed by 4,100. On further strength, attention shifts to the February highs, just below the 4,200 psychological handle. Conversely, if sellers regain control of the market and drive the index below the trendline mentioned before, we could see a move toward 3,885.

S&P 500 TECHNICAL CHART

S&P 500 Chart Prepared Using TradingView

GOLD TECHNICAL ANALYSIS

Gold has begun to recover and appears to have regained its footing after a steep sell-off earlier this month, but the upside may be capped if prices fail to clear resistance at $1,840. If that’s the case, sellers could surface, sending the metal back toward its February lows, followed by a drop toward the 200-day simple moving average. On the flip side, if XAU/USD pierces resistance at $1,840 in a decisive fashion, the 50-day simple moving average could become the next target of interest.

GOLD TECHNICAL CHART

Gold Chart Prepared Using TradingView